Benefits of Annuities
Annuities are insurance contracts designed to provide a steady stream of income, often for life. They can serve as a powerful tool in retirement planning by combining tax advantages, protection features, and customizable options.
1. Guaranteed Lifetime Income
• Provides payments for as long as you live, removing the risk of outliving your savings
• Options include single life (covers you only) or joint life (covers you and a spouse)
Tax-Deferred Growth
• Earnings grow inside the annuity without annual tax on interest or gains
• Taxes are due only when you take distributions, potentially at a lower tax rate in retirement
Principal Protection
• Fixed and indexed annuities offer protection of your original investment
• Even if the market declines, your principal and any credited interest remain intact
Death Benefit for Beneficiaries
• Many annuities guarantee that a beneficiary will receive at least the sum of your premiums, minus withdrawals
• Ensures heirs get a payout even if you pass away shortly after funding the contract
1. Customizable Riders and Features
• Inflation protection riders can boost payments over time to keep pace with rising costs
• Long-term care or enhanced death benefit riders add extra protections for a fee
• Income-boosting riders can increase payments in exchange for guaranteed higher fees
No Contribution Limits
• Unlike IRAs or 401(k)s, there are generally no annual caps on how much you can invest in an annuity
• Useful for high-net-worth individuals seeking additional tax-deferred space
Creditor Protection (in Many States)
• Annuity contracts are often shielded from creditors in the event of bankruptcy or legal judgments
• Protection levels vary by state and contract type
Annuities offer a blend of guaranteed income, tax deferral, and safety features that can fill critical gaps in a retirement plan. By selecting the right product type and optional riders, you can tailor an annuity to address longevity risk, market volatility, and estate-planning goals.
Next, you might explore the differences between fixed, variable, and indexed annuities, or compare the cost and benefit trade-offs of popular income riders.